Incredible Shrinking China

The Financial Times has just published a tremendously insightful op-ed on the real size of the Chinese economy. Albert Keidel, drawing on work done by the Asian Development Bank, observes that because “China had never participated in the careful price surveys needed to convert accurately its gross domestic product into PPP dollars,” the size of the Chinese economy under PPP has been exaggerated by 40 percent.

This is a bombshell that ought to have a major impact on how we think about

(a) the global poverty picture

“The number of people in China living below the World Bank’s dollar-a-day poverty line is 300m – three times larger than currently estimated.”

and (b) the global power picture

“Well-informed analysts know that PPP calculations are a poor measure of a country’s potential military base, but with the corrected China PPP statistics, the whole question is moot. China is just not that big now and will not get that big any time soon.”

Consider comparisons between India and China. China sharply slowed population growth through repressive measures, and its economic takeoff began at the very end of the 1970s. India’s takeoff began in the mid-1990s. (Some argue it began in the mid-1980s, but there was a step change after the first round of Singh-led reforms.) According to the old numbers, China’s PPP GDP per capita was $7,800 and India’s was $3,800. Reduce the Chinese number by 40 percent and the adjusted number is $4,680. The contrast between $4,680 and $3,800 is a lot less dramatic, particularly when you consider India’s late start.

So it seems that India, despite a Naxalite rebellion raging across a large swathe of the country, a couple of low-grade separatist insurgencies, appallingly high levels of female illiteracy, a history of violent communal conflict, failing states on its frontier, extreme ethnolinguistic diversity, and a highly dysfunctional political culture … is holding its own.

What does this do to the case for the so-called Beijing Consensus?

Of course, this isn’t to say that Chinese soft power isn’t real, or that China isn’t minting billionaires at a rapid clip. Rather, this suggests that perhaps China doesn’t have its priorities right, and that the United States (as Victor Cha has argued) has been right to take a non-confrontational stance towards an extremely poor, vulnerable country that’s done pretty well by relying on the delicate latticework of international trade, but that could go up in smoke very quickly.

I’m a China optimist. The new numbers don’t change that. We’re talking about a highly successful closed political system that has adapted pretty well to changing domestic political circumstances. But this does remind us that our relative weight in the world remains vast, and that closed political systems are very costly indeed.

Suffice to say, I have more thoughts, but I’ll leave you with that for now.

P.S.- The indispensable Razib Khan reminds me that we need to take into account incredible shrinking India, where the poverty numbers now look a lot bleaker. My sense has always been that Indian government statistics are of fairly high quality, but the ADB suggests otherwise. So it seems India’s relative progress has not been that impressive.